How Richard Riordan Blew $800,000 on a Failed Try at Pension Reform

In mid-October, Richard Riordan announced that he would launch a petition drive to radically reform L.A.'s pension system. The 82-year-old former L.A. mayor has been predicting fiscal doom for the city for years. And after similar reforms succeeded with voters in San Jose and San Diego, he believed the time finally was right for sweeping change in L.A.

A mere six weeks later, Riordan pulled the plug — but not before spending $800,000 of his own money, as he told the Weekly.

Riordan and his allies say he simply had too little time to gather the required signatures. "I was really naive to think we could get it done within the time," Riordan says. "It was really impossible."

But that's only a small part of the story. The measure was doomed in several ways, from conception to execution. Riordan failed to make the necessary compromises for a winning proposal, neglected to win allies and underestimated the cost of qualifying for the ballot.

His failure could have real consequences: The aborted effort has given L.A. unions a jolt of confidence and could potentially undermine future efforts to address L.A.'s pension problems.

"I don't think the folks [in L.A.] fully appreciated what it was really going to take to qualify an initiative like this, let alone pass it," says T.J. Zane, who helped organize the San Diego initiative. "They didn't fully appreciate the cost of this undertaking and fully commit to doing it."

Riordan's problems began with the substance of his proposal. At its core was a belief that cities should follow the lead of the private sector and switch all new employees to 401(k) plans. "The governance and funding of a public pension fund doesn't work today," says Alex Rubalcava, an investment adviser who counsels Riordan on the issue.

While reformers in San Jose and San Diego shared that view, they had to compromise to build support for their plans. In San Jose, Mayor Chuck Reed agreed to keep pensions in place, albeit at a much lower level.

"Getting a council majority is not easy," Reed tells the Weekly. "We decided in San Jose, as part of getting a council majority together, we should continue defined-benefit plans."

In San Diego, City Councilman Carl DeMaio had been pushing for 401(k)s, but he agreed to carve out an exemption for police officers. That concession helped win the support of Mayor Jerry Sanders, himself a former police chief.

In L.A., however, Riordan drew up the plan more or less on his own. It imposed 401(k)s on all new employees, including police officers, firefighters and utility workers. It required current employees to pay half the cost of their retirements, and it capped the salary levels that would count toward retirement. It was far more sweeping than the initiatives in San Jose and San Diego, and no elected official got near it.

When Riordan went around to L.A.'s millionaires and billionaires seeking financial support, he got pats on the back but he did not get any checks. In the end, he acknowledges, he was the sole funder of the campaign.

And he simply didn't want to spend enough money. Consultants tell the Weekly that Riordan would have had to spend at least $1.2 million — and perhaps more than $2 million — just to qualify the initiative for the ballot. But when asked in November how much he expected to spend, Riordan told City News Service he would put in $200,000 to $400,000.

The former mayor seems to have been tripped up by inflation. In 1996, he'd announced he would spend $200,000 to $400,000 on a charter-reform initiative. The figure seems to have stuck in his head without adjustment to reflect current realities.

Riordan also underestimated the ferocity of union opposition to the measure, which drove up the cost.

In San Diego, union supporters developed a strategy of showing up at supermarkets and interfering with signature gatherers. They also collected signatures from people saying they wanted to be taken off the petition, which prolonged the process. According to DeMaio, the unions also submitted thousands of duplicate signatures, which caused the initiative campaign to overestimate its count.

DeMaio and his supporters took countermeasures. They gathered signatures door to door. They did robocalls to neighborhoods, telling sympathizers that signature gatherers would be at the local grocery store. They made public appearances. They paid for full signature verification.

But all of that cost money: The San Diego reformers spent six months and $800,000 to qualify their measure — with a signature threshold one-third of L.A.'s.

"The unions have become very sophisticated at blocking signature campaigns," DeMaio says. "I've told people that are thinking about initiatives that there's going to be two campaigns. There's going to be the real campaign, but before that, there's going to be the qualification campaign. The qualification campaign will be the harder effort."

To gather his signatures, Riordan hired National Petition Management, which brags on its website that clients turn to the company "when failure is not an option." The website says the firm has "a near perfect record in the worst of conditions and shortest time frames."

Rick Taylor, a political consultant who has run several successful signature efforts, says he would have hired a different firm, PCI Consultants. Most recently, PCI gathered the signatures to overturn L.A.'s medical marijuana ban. (Indeed, one of the ironies of Los Angeles politics is that pot shops turned out to be better organized than the former mayor.)

"That's who you gotta go with," Taylor says. "It's gonna cost more money, but those are good, valid signatures."

Riordan tells the Weekly he had confidence in Albright's professionalism and candor.

As the Dec. 28 deadline approached, Riordan increased the spending per signature in hopes of speeding up the process. His budget ballooned, but the raise had little effect.

Riordan fired his consultant and hired one who had worked on the San Diego campaign. But by mid-November it became clear that it was too late. In a conference call with Riordan and his team, DeMaio was blunt, he tells the Weekly.

"You guys are dead men walking," DeMaio told them. "You do not have time. You're going to throw good money after bad."

One other thing, DeMaio says he told them: "You should have had a lot more money from the get-go."

Had Riordan succeeded in getting the measure on the ballot, it's not at all certain that it would have passed. While voters broadly support pension reform, they are less inclined to support 401(k) plans, especially for police officers and firefighters, says Vic Ajlouny, the consultant who ran the San Jose campaign.

"Our numbers showed a 401(k) would have been more difficult," Ajlouny says. "When you do 401(k)s, what entices an employee to stay with the city?" Officers could easily change jobs and take their retirement portfolios with them. "You really need the experience," he says.

Riordan also was unable to rebut charges that his plan was a fiscal boondoggle because he never paid for his own analysis. Zane, who worked on the San Diego effort, says his group did a thorough fiscal analysis of its proposal before seeking signatures.

"Even if they had qualified the initiative," Zane says, "they were potentially doomed."

Now, Riordan says, it's up to L.A.'s elected leaders to address the pension crisis.

"The unions and the city council and the mayor have to come to their senses and realize this city is headed directly toward bankruptcy," he says.

In 2010, Riordan famously predicted that the city would be bankrupt by 2014. Almost three years later, the city is struggling but no closer to insolvency, so Riordan has had to postpone doomsday.

"The tipping point will be when people stop buying city bonds," he says now. "Probably 2017."

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